Buy Navin Fluorine For Target Rs. 5,400 - Anand Rathi Stock Brokers
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Growth momentum to continue, margins to improve; retaining a Buy
With its highest quarterly revenue and improved EBITDA margin, Navin’s strong performance in Q3 continues and offers reassurance regarding its execution capabilities. Its gross block going to expand ~4x over FY22-25 for different high-margin products. These expansions give strong revenue assurance and we expect revenue/EBITDA/PAT to clock 34%/40%/36% CAGRs over FY22-FY25 on strong CDMO demand, more volumes from specialty chemical products and a pick-up in utilisation of HFO. Navin has a strong product pipeline in R&D which gives confidence regarding future capex. We expect higher operating margins on greater utilisation with better absorption of costs on the recently commissioned capacities.
Strong performance across businesses. Supported by greater volumes from the recently commissioned capacities in specialty chemicals, a pick-up in revenue from hydro-fluoro-olefins and more CDMO business, Q3 revenue grew 48.7% y/y, 34.4% q/q, to Rs5.6bn. The EBITDA margin expanded 159bps y/y, 522bps q/q, to 27.6%, supported by better absorption of fixed cost on higher utilisation.
Guidance. Management expects the growth momentum in specialty chemicals to persist, driven chiefly by volumes on the commissioning of projects and a pick-up in utilisation at the recently commissioned capacities. We expect the CDMO business to do well in coming quarters, with execution of orders of $16m and a dull H1 FY23 performance. The Rs750m capex to de-bottleneck CGMP3 is expected to be capitalised by Dec’23 and plans are afoot to set up a dedicated multi-purpose CGMP4 plant to address mounting demand. The company expects full utilisation of HFO plant in FY24 and, at the recently commissioned (in Q3FY23) agrochemical intermediates plant, in Q4 FY23.
Valuation. There is no material change in our estimates. We maintain our Buy rating on the stock, with the same TP of Rs5,400, valuing it at 40x FY25 EPS. Risks: Delay in executing new projects, inability to scale up CDMO, issues with RM sourcing and demand slowdown in refrigerant-gas business.
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